Guest Article: Prashant Panday: Giant leap should not become a jump off the cliff in Phase 3 of radio reforms

Phase 3 means 'catching up' time. It means an opportunity for radio broadcasters to expand the way every other media outlet has in the last seven years. Phase 3 means breathing again.

Radio broadcasters are fed up talking about Phase 3 of radio reforms. Since the policy was announced in July 2011, broadcasters have given hundreds of interviews, adjusted to ever-changing deadlines for auctions and prayed an innumerable number of times for some movement forward. I cannot even start to describe how onerous writing yet another piece on Phase 3 is going to be!

But scepticism and mirth aside, what does Phase 3 really mean for the private FM broadcasting industry? In simple: the world.

Why is that so? Consider this simple fact. The last auctions were held in January, 2006. It will soon be seven years since any expansion opportunity will have been made available to radio broadcasters. In the meanwhile, TV channels have mushroomed, telecom subscribers (and yes, telcos are media companies, too) have moved rapidly towards the billion mark, newspapers are adding editions every quarter and outdoor sites are coming up faster than ever before. On top of all this of course is the inexorable growth of the internet. In all of this, radio is stuck in 2006.

Isn't it evidence of the power and importance of radio to an advertiser when one realises that the share of radio has climbed from some 1 per cent or so of the advertising industry to nearly 4.5 per cent now - in spite of all the restrictions to growth?

That's where Phase 3 comes in. Phase 3 means "catching up" time. It means an opportunity for radio broadcasters to expand the way every other media outlet has in the last seven years. Phase 3 means breathing again!

There are many progressive parts in the Phase 3 policy. For starters, broadcasters are allowed to own multiple frequencies in the same city. Now this may look very unexceptional to other media owners, but for radio broadcasters, even this basic right has been denied till date. The new policy now allows a broadcaster to own up to 40 per cent of all frequencies available in a city. That's quite nice, and that should help generate more programming variety on radio - overcoming the biggest complaint that listeners have with radio.

And yet, even on this score, the Phase 3 policy fails to get top marks. Multiple frequencies alone will not ensure programming variety. We also need many more channels in every market. Currently, there is only one channel available for auction in Delhi, Bengaluru, Chennai, Ahmedabad and Pune, and two in Mumbai. This will take the total number of channels to nine in each of these 6-7 million plus cities. How can there be programming variety with so few channels? For programming variety to really emerge, we need another 10-20 channels. Only these two points taken together - more frequencies being auctioned and multiple frequencies being permitted to broadcasters - will ensure programming variety. Until then, listeners will have to manage with what they are getting now.

It is TRAI which has taken the initiative to resolve this problem. Via a progressive recommendation made six months back, TRAI has suggested that "channel separation" - the frequency separation between two adjoining FM channels - be halved from 800 Khz to 400 Khz. This would double the number of channels in one fell swoop. Listeners would get a lot more variety, the government itself would get a lot more license fees (avoiding any Coalgate and 2G kind of scams!) and broadcasters would get oxygen to breathe - and yet we are still awaiting the government's acceptance of TRAI recommendation.

Not accepting TRAI's recommendation will be disastrous for the radio industry. The Phase 3 policy prescribes 3G-style "ascending e-auctions". In other words, auctions will rise step-by-step till demand matches supply. As we have seen in 3G, bidding is often irrational - especially under scarcity conditions. If a large business like telecom can be weighed down by high bids, what would happen to the small radio sector? It would crash in no time. That is why the government has no option but to accept TRAI's recommendations before Phase 3 auctions are conducted.

Doubling frequencies will also benefit broadcasters, who have to renew their licenses from 2015-16. Another part of Phase 3 policy says that the highest bid achieved in the Phase 2 bidding will become the starting point for bidding in Phase 3. By extrapolation, the highest bid received in Phase 3 auctions (under scarcity conditions; and using e-auctions as a methodology) will become the starting point for subsequent rounds of bidding, including for renewal of current licenses. This will surely put radio into a cost spiral.

Consider this: no other segment of the media industry - be it TV or print or outdoors or the internet - pay anywhere close to this kind of license fees. During Phase 2 auctions in 2006, broadcasters paid some Rs 1,300 crore as One Time Entry Fee (OTEF) for 10-year licenses. By the government's own estimates, Phase 3 auctions could net the government 25 per cent more this time. If broadcasters don't bid sensibly, the entire Phase 3 reform would become a jump off the cliff rather than the giant leap forward!

Broadcasters are financially in no position to bid. Most broadcasters are losing money at the PAT level. Even those who have broken even have no hopes of recovering accumulated losses. Sooner or later, shareholders will demand returns. Currently, since most radio broadcasters are part of larger media groups (Mirchi-TOI group, Red FM-Sun TV; My FM-Dainik Bhaskar, Fever FM-Hindustan Times, Oye-Aaj Tak), these tough questions are perhaps not being asked. But as the parent companies come under pressure, they will start making the demands.

What can the government do to make Phase 3 auctions a roaring success?

First and foremost, accept TRAI's recommendations on channel separation. Like I mentioned earlier, that will give more play to radio broadcasters, allowing them to launch more channels and distribute operating costs over more offerings. It will also enrich the coffers of the government and give listeners more variety.

Second, the government must revisit the e-auctions policy. E-auctions are fine - but which type of e-auctions? E-tenders are better than ascending e-auctions. In e-tenders - this method was very successfully deployed in Phase 2 - bidders win licenses by bidding different amounts. The ones who get licenses at relatively lower bids can offer niche channels. Check out all the broadcasters who are today offering English radio stations in Delhi, Mumbai, Chennai and Bengaluru - they all got their licenses at relatively lower costs. With ascending e-auctions, there is no possibility of that at all. All bids come in at the same price - and a high price at that. Ascending e-auctions are fine for 3G and possibly other resources; but they are surely not ok for media.

Thirdly, the government must allow for full content freedom. In today's open world, there is no sense in restricting radio broadcasters from doing news and current affairs on their own. For large media companies to buy news content from the state broadcaster is like rubbing salt into our wounds.

And lastly, the government must revisit the policy of "highest bid of previous round becomes starting point of this round". This will put the radio industry out of business, and deprive listeners of variety. The government has to remember that radio is the only entertainment medium that is completely free. No subscription charges; no cover prices. It is totally FREE. No other medium can claim that.

To end, broadcasters are waiting for a signal that the government means business. I don't know if there is a policy freeze elsewhere or not; but I can say with confidence that there is a freeze as far as radio is concerned. Phase 2 auctions were completed within six months of policy announcement. It's now already 14 months since Phase 3 policy was announced, and we are still waiting. Hopefully, the auctions will happen before we are all dead and gone!